Sex, Drugs, and Bitcoin: How Much Illegal Activity Is Financed through Cryptocurrencies?

By Sean Foley, Jonathan R. Karlsen, Tālis J. Putniņš. The Review of financial studies, 2019

817 citations recorded by the source corpus.

Cryptocurrencies are among the largest unregulated markets in the world. We find that approximately one-quarter of bitcoin users are involved in illegal activity. We estimate that around $\$$76 billion of illegal activity per year involve bitcoin (46% of bitcoin transactions), which is close to the scale of the U.S. and European markets for illegal drugs. The illegal share of bitcoin activity declines with mainstream interest in bitcoin and with the emergence of more opaque cryptocurrencies. The techniques developed in this paper have applications in cryptocurrency surveillance. Our findings suggest that cryptocurrencies are transforming the black markets by enabling “black e-commerce.”Received June 1, 2017; editorial decision December 8, 2018 by Editor Andrew Karolyi. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Subfields: Information Systems, Sociology and Political Science

View Paper: https://www.semanticscholar.org/paper/1fbf77970e8bb129b9597e65a58d85fb1d76e230

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Citations in the corpus

Is Bitcoin Really Untethered? (2020, background): “Gandal et al. (2018) argues that fraudulent trading on the Mt. Gox exchange led to a significant spike in Bitcoin prices in late 2013.10 Foley, Karlsen, and Putniņš (2019) detail hubs of illicit commerce in Bitcoin and estimate that 44% of transactions are associated with illegal activity.”
Some simple bitcoin economics (2019, background): “They argue that a large share of transactions is related to illegal activities, thus agreeing with Foley et al. (2018), who investigate this issue in additional detail.”
Regulating cryptocurrencies: assessing market reactions (2018, background): “And regulation can address whether and how banks are allowed to deal in cryptocurrency-related assets for their 5 For examples highlighting the use of cryptocurrencies for illegal activities, see Fanusie and Robinson (2018) and Foley et al (2018).”
All One Needs to Know about Metaverse: A Complete Survey on Technological Singularity, Virtual Ecosystem, and Research Agenda (2021, background): “cryptocurrency banking system has another fallibility in robustness as authorities can face tremendous hardship in acting as lender of last resort to forestall the systematic collapse of this new banking system [637], which only increases their burden on top of tackling illegal activities associated”
Should investors include Bitcoin in their portfolios? A portfolio theory approach (2020, methodology): “There is an ever-growing literature examining Bitcoin, with influential work by Gandal et al (2018) documenting the price manipulation of Bitcoin, while Foley et al (2019) show the amount illegal activity conducted through Bitcoin.”
Fintech and banking: What do we know? (2019, neutral): “See Foley et al. (2019) who document that 46% of Bitcoin activity is illegal.”